South Korea’s central bank has paused further development of its central bank digital currency (CBDC) after three months of testing. This decision comes as both the government and local banks ramp up support for stablecoins.
The Bank of Korea has shelved plans for a second round of CBDC trials, originally slated for later in the year. Simultaneously, eight South Korean banks are working together to launch a stablecoin backed by the Korean won, with hopes of launching it next year.
Indications of a Broader Global Trend
This move may reflect a wider shift among central banks worldwide, favoring stablecoins over CBDCs. A high-ranking official at one of the participating banks noted to South Korea’s Yonhap News Agency that the coexistence of CBDCs and stablecoins remains uncertain.
Discontent with initial testing could have contributed to this change in direction. According to a senior banking official, seven participating banks felt the cost of the second phase of the CBDC trials was too high. Half of the banks involved in the stablecoin project also participated in the CBDC tests.
The first stage of the CBDC tests saw 100,000 participants using payments via a central bank-issued currency from April 1 to June 30. The second phase would have expanded the number of merchants involved. Early concerns centered on CBDCs potentially giving governments too much access to citizens’ transaction histories.
Instead, stablecoins were seen as a more viable alternative, combining the stability of fiat currencies with cryptocurrencies’ efficiency.
A New Governmental Approach
The new South Korean President Lee Jae-myung’s strong support for crypto has also driven this shift. During his campaign, he pledged to back a won-based stablecoin market, and his Democratic party recently proposed legislation that would allow qualifying companies, including non-banks, to issue stablecoins.
A Korean bank official stated: “We don’t know whether the issuing entity of stablecoins will be banks, big tech, or fintechs. We must prepare for both scenarios.”
